The City conducts routine audits to determine compliance with the Arvada Municipal Code. The purpose of the audit is to determine whether the correct amount of tax has been reported and paid by the taxpayer. Taxpayers are required to keep records for a determination of taxes due. Those records must be made available for inspection by the City. The City selects a diverse group of taxpayers for audit based upon a number of factors. Selection for audit is not an indication that a taxpayer has made an error.
Audit Statute of Limitations
In most cases, the City may audit returns up to 36 months (3 years) after they are filed. This period is fixed by the date of the City’s written notice of audit. The City may also extend the period of limitation by entering into a written agreement between the taxpayer and the Finance Director. In some cases, the City may conduct an audit of a taxpayer that has been in business for fewer than 3 years to identify potential problems early. If the taxpayer has filed a false or fraudulent return, or has failed to file a return, the City may collect taxes more than 3 years past due.
Location of Audit
Audits are conducted by the City’s team of professional tax auditors. These auditors are familiar with generally accepted accounting principles and auditing standards. Audits take place at the location where the taxpayer’s records are maintained. This can be the taxpayer’s place of business, a main office, or an accountant’s office. Records can also be examined at City Hall if space is a problem or if records are being provided electronically. The City makes an effort to conduct the audit at a time that is convenient for all parties. Taxpayers that need to produce records will have a reasonable amount of time to do so. In most cases, copies will be acceptable. The auditor may ask for some original records for proper authentication.
The City has the discretion to conduct the audit at the location of their choice. It can be where records are maintained (either locally, or out‐of‐state), or they can require that records be produced at City Hall for examination. In the case of home‐based businesses, the audit will not take place at the taxpayer’s location. An offer to reimburse the City for costs of travel to out‐of‐state offices is allowed, but the decision to travel remains at the City’s discretion.
Required Records
The audit engagement letter includes a Check List of the records required. Your own records may vary from these depending on your accounting system. If you are unclear about any of the items requested, it is important to contact your auditor in advance. All requested records are ready on the Records Due Date.
Required records must, upon request of them, arrive for inspection no later than 14 days from the date requested.
Generally, records requested may include the following:
- Charts of accounts
- Accounting system definitions necessary to understand accounting system data
- Reports detailing how City tax returns were calculated
- Detailed ledgers of sales and/or purchase transactions
- Trial balances, balance sheet, or profit and loss reports
Records specific to Sales, Accommodations, and Admissions Tax testing:
- Sales invoices, billings, or receipts with:
- Items purchased and their price
- Tax collected
- Delivery address, if applicable
- Taxability of products and services
- Documentation supporting exempted sales
Records specific to Use Tax testing:
- Invoices for supplies and services not held for resale
- Invoices for capital assets
- Fixed asset listings and/or depreciation schedules
- General ledger activity of fixed asset accounts
- Sale / Purchase Agreement of Business Operation
Additional records may be requested during the course of the audit. You will be given reasonable time to produce these records. In some cases, the auditor may review a sample of records rather than reviewing all periods.
Confidential of Audit Records
With few exceptions, the Code prohibits disclosure of information obtained during an audit to unauthorized persons. Information used by the auditor will be kept secure to prevent unauthorized access. During the audit, you may ask your auditor:
- Why certain information is being requested
- How such information will be used
- Consequences of failing to submit the requested information
Third-Party Representation
At any time during the audit, you have the right to suspend a meeting or interview for a reasonable amount of time to retain representation. Any person representing you must have the proper written authorization, such as a Power of Attorney, to act on your behalf.
Audit Findings
Once the auditor has finished examining your records, they will prepare preliminary work papers. The work papers and a general summary of findings will be provided to you either in person or electronically. You will have time to review the preliminary findings. You will also have time to provide any extra information requested or that you deem pertinent to the audit. You may then review the findings with the auditor and discuss any adjustments. The auditor will make any adjustments. You will receive a formal audit conclusion letter with an assessment or overpayment notice.
Additional Tax Due - Assessment
If the audit concludes that additional tax is due, a Notice of Assessment will be issued listing the total deficiency, plus penalty and interest. If you agree with the findings, the Notice of Assessment must be paid within 30 days. If you believe that good cause can be demonstrated for penalty abatement a written request for abatement should accompany full payment of the tax and interest. Properly assessed interest cannot be abated. All or part of the Notice of Assessment may be protested within the 30 day period by filing a written protest with the Finance Director. The un‐protested amounts must be paid by the due date.
Interest Due
Interest accrues only in whole‐month increments from the original due date of the tax until the assessment is paid. The monthly rate is 1% of the tax deficiency, and is not pro‐rated if a deficiency is unpaid for only a portion of a month. The filing of a protest does not stop the accrual of interest. The Code prohibits the abatement of interest.
Overpayment of Tax - Refund
If the audit results in an overpayment, a Claim for Refund will need to be completed, signed, and submitted. The overpayment will be credited to the account and used for future taxes owed or a refund check will be issued. A refund check will generally be issued within two weeks.
Coordinated Audits
If you have a sales tax license in at least four other Colorado home‐ rule municipalities, you may request that an audit by all cities be conducted at the same time. You must contact all cities involved within 14 days of your receipt of an audit notice. Contact the Revenue Office for details.
Audit Philosophy
The City of Arvada audit procedures will at all times be unbiased, confidential, and held to the highest standards of public service. Our priority is to provide help, information and guidance on the City’s processes, rules and regulations.
*This information is a summary in layman's terms of the relevant Arvada tax law for this subject, industry, or business segment. It is not intended for legal purposes to be substituted for the full text of the Arvada tax code. However, the tax guide shall be used in conjunction with the Arvada tax code (chapter 98) in determining tax liability.